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PENSION REFORM ACT 2014

NEWSLETTER

PENSION REFORM ACT 2014

On 1 July 2014, President Goodluck Jonathan signed into law the new Pension Reform Act 2014 which repealed the Pension Reform Act No. 2 of 2004 (repealed Act) to continue to govern and regulate the administration of the uniform Contributory Pension Scheme for both the Public and Private Sectors in Nigeria.

The highlights of the new Pension Reform Act are:

1. Commencement Date:

The Act does not specify a commencement date, however, Section 2 of the Interpretation Act CAP I23 of LFN 2010 is to the effect that where no date of commencement is contained in an Act, the commencement day shall be the day the Act is passed or signed into law. Unless a commencement date is inserted before the Act is gazetted, the commencement date will be 1 July 2014.

2. Upward Review of Rate of Pension Contribution:

The Pension Reform Act 2014 reviewed upwards, the minimum rate of Pension Contribution from 15% to 18% of monthly emolument, where 8% will be contributed by employee and 10% by the employer. This will provide additional benefits to workers’ Retirement Savings Accounts and thereby enhance their monthly pension benefits at retirement.

3. Upward Review of the Penalties and Sanctions:

The Pension Reform Act 2014 has created new offences and provided for stiffer penalties that will serve as deterrence against mismanagement or diversion of pension funds assets under any guise. Thus, operators who mismanage pension fund will be liable on conviction to not less than 10 years imprisonment or fine of an amount equal to three-times the amount so misappropriated or diverted or both imprisonment and fine.

4. Eligibility and Number of Staff:

These include all employees in the public sector and employees for private organisations in which there are 15 or more employees. The Act also provides for organisations with less than 3 employees participation in the Scheme and silent on the applicability of the Scheme to organisations with more than 3 but less than 15 employees.

 

5. Access to Benefits in Event of Loss of Job:

The Pension Reform Act 2014 has reduced the waiting period for accessing benefits in the event of loss of job by employees from six (6) months to four (4) months. This is done in order to identify with the yearning of contributors and labour. An employee who disengages from employment or is disengaged before the age of 50 and is unable to secure employment within 4 months of disengagement is allowed to make withdrawals from the account although not exceeding 25% of the total amount credited to the retirement savings account.

6. Opening of Temporary Retirement Savings Account (TRSA):

The Pension Reform Act 2014 makes provision that would compel an employer to open a Temporary Retirement Savings Account (TRSA) on behalf of an employee that failed to open a Retirement Savings Account within three (3) months of assumption of duty.  

7. Investments:

The Act expands the scope in which the pension funds can be invested and this includes specialist investment funds and other financial instruments the Commission may approve.

8. Exemption from tax:

In line with the repealed Act, the Act clearly mentions that any interests, profits, dividends, investments and other income accruable to pension funds or asset are not taxable.

Conclusion

These Act implies that employers will have to increase their staff cost in order to maintain the current staff take home pay.

It is hoped that PenCom would come up with implementation strategies that would address;

  • Employers with over 3 staff and less than 15 employees.
  • Effective commencement date.

Time frame for Companies to comply with this regulation. 

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